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Xcel cites pipeline dangers in case for natural-gas rate hike

Xcel Energy asked state regulators in Denver on Wednesday for permission to increase natural gas rates over the next 10 years so it can raise about $800 million to upgrade aging and potentially dangerous pipelines.

The Minneapolis-based utility, which has about 1.3 million natural gas customers in Colorado, says it needs the money to pay for the replacement of about 100 miles of transmission pipelines that were installed before the 1950s.

The increase, which requires approval by the Colorado Public Utilities Commission, wouldn’t go into effect until August but would remain until 2023.

Money from the proposed increase would be on top of about $600 million the utility already plans to spend on pipeline upgrades, said David Eves, president and CEO of Xcel’s Colorado subsidiary, Public Service Co. of Colorado.

Eves said it makes sense to ask for the increase now while natural gas prices and interest rates are still low.

“It’s a dramatic increase over what we were previously planning to do to get a lot of this work done sooner, and do more work than we had previously planned,” Eves said. “The combination of those two things (interest rates and gas prices) make this a really good time to make the investment.”

The rate hike request comes, in part, as a result of recent explosions elsewhere in the nation, including West Virginia on Tuesday.

Federal officials started questioning the safety of natural gas pipelines nationwide after the dramatic September 2010 explosion in a San Francisco neighborhood that killed eight people. Xcel officials, however, said they were concerned about the issue years before that.

It has already met a Monday deadline set by federal regulators to perform baseline inspections of all its transmission pipes.

Although none of the accidents has occurred in Colorado, Xcel has identified and repaired more than 70 “immediate threats” in the state. As a result, the company wants to upgrade its aging pipelines sooner rather than later, but it still would take about decade to get it all done.

To pay for it, the company is proposing a 10.7 percent increase over this year’s base natural gas rates. It wants to spread that increase, however, over the first three years of that 10-year period. The plan also calls for Xcel’s small-business customers to see a 10.4 percent overall rate hike by 2015.

Xcel said if the increase is approved, it won’t ask for another natural gas hike to go into effect until at least 2016. The company, however, still is required to raise or lower natural gas rates every quarter depending on commodity prices.

The utility also serves 3.4 million electricity customers, but the rate hike won’t impact those power bills. The PUC already approved a $114 million base rate increase for those customers earlier this year.

Xcel officials argue that because of dramatically low natural gas prices, even with the rate hike, consumers still would see lower bills than they’ve been paying over the past decade.

Citing an American Gas Association survey of more than 100 of the nation’s largest utilities, Xcel’s Colorado consumers paid the lowest in the county by nearly half, company officials said.

Natural gas markets have increased in recent years, including its use as a transportation fuel, but safety and long-term service reliability are what’s driving the need to raise rates, Eves said.

Currently, the company maintains about 2,300 miles of distribution pipelines, most of which were installed in the 1960s and 1970s.

The company also maintains about 21,200 miles of distribution mains and about 1.2 million individual service lines. Its pipes range in size from as large as 36 inches in diameter to three-quarters of an inch.